<div id="readability-page-1">Amid the artificial intelligence boom, the world has been laser-focused on technologies like graphics processing units and memory chips. However, a quieter miracle has been unfolding in the mainland stock market. Optical modules, which allow ultra-fast communications in data centres, have minted a new class of industrial upstarts. In the past year, shares in Shenzhen-listed Zhongji Innolight, the world’s largest optical module producer, jumped tenfold. Smaller peers Eoptolink Technology and Suzhou TFC Optical Communication, also listed in Shenzhen, notched share-price gains of more than five times. And the combined market capitalisation of the three firms recently eclipsed that of baijiu distiller Kweichow Moutai – the long-standing champion of Chinese equities. In the first quarter, Innolight and Eoptolink were the second and third favourite stocks among actively managed equity funds in the country, trailing only the world’s leading maker of electric-vehicle batteries, Contemporary Amperex Technology Ltd (CATL), according to financial information provider Wind. TFC ranked 12th, ahead of Ping An Insurance and chipmaker Cambricon Technologies. Notably, Innolight and TFC have both recently announced plans to list in Hong Kong, further expanding their influence and footprint overseas. What do the firms make? Optical modules, also known as optical transceivers, convert electrical signals to optical signals, and vice versa, for high-speed data transmission in networking and AI infrastructure systems. Data centres are increasingly shifting from copper wires to optical interconnect systems, because only the latter – using light pulses travelling through glass-fibre cables – can provide the massive bandwidth that AI and machine learning set-ups require. As AI clusters continued to expand, there had been a “significant increase in demand for optical transceiver modules” capable of transmission speeds of 800 gigabits per second or higher, according to a report this week by TrendForce. All three firms provide products for that speed, as well as more powerful modules capable of 1.6 terabits per second – required by Nvidia’s latest-generation Rubin platform and Blackwell products. Meanwhile, the companies have also expanded to a next-generation technology known as co-packaged optics (CPO), which places optical devices inside the same chip package as semiconductors known as application-specific integrated circuits (ASICs). Putting the formerly separate devices in closer proximity slashes power consumption, increases bandwidth density and reduces latency. Why are optical modules in high demand? The demand for high-speed connectivity is increasing rapidly. The average capacity of hyperscale data centres to be opened by 2028 would be almost double that of the facilities operating in 2025, while the total capacity of all operational hyperscale data centres was set to grow almost threefold by 2030, according to Synergy Research Group. Massive cloud computing is driving the evolution of data centre network architectures, from the traditional three-tier design to a so-called spine-leaf architecture, a two-layer network topology designed for high-speed, low-latency communication. This change would increase the number of optical modules required as much as tenfold, according to an Eastmoney Securities report earlier this week.  This explosive demand is reflected in the companies’ latest financial reports. Innolight nearly tripled its revenue in the first quarter, while profit jumped by more than 260 per cent. Eoptolink more than doubled its revenue in the same period, while TFC’s sales rose more than 40 per cent. Where does China stand? Chinese firms now dominate a global top 10 list of transceiver manufacturers compiled by industry intelligence firm LightCounting. Innolight topped the most recent list in 2024, with Eoptolink in third and Huawei Technologies, Accenlink, Hisense and HG Genuine all making the cut. Innolight did not appear in the top 10 in 2010, but climbed to second place in just eight years, trailing only Finisar, an American optical giant acquired by Coherent in 2019. Coherent ranked second in the 2024 list. The Chinese firms are not just domestic players; they are primary suppliers to Western tech giants. For example, Innolight’s major clients included Nvidia, Google and Amazon, according to Eastmoney Securities. Earlier this week, TFC announced a joint venture in Singapore with AI infrastructure solutions provider SuperX AI Technology to focus on optical interconnect products for the international market.</div>

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<p>China's optical communications sector is experiencing significant growth amid the AI boom, with companies like Zhongji Innolight, Eoptolink Technology, and Suzhou TFC Optical Communication seeing substantial share price increases. The demand for optical modules, essential for high-speed data transmission in AI infrastructure, is surging as data centers transition from copper to optical systems. Innolight and Eoptolink ranked among the top stocks for equity funds, and both plan to list in Hong Kong. Chinese firms now dominate the global transceiver market, supplying major clients like Nvidia and Google.</p>

Why China’s optical communications sector is the latest AI boom beneficiary